The word coming out of Washington is that the arithmetically challenged Paul Ryan is actually working on a budget with the Trump administration. The Trump administration is not only a fact free zone, it now considers alternate facts legitimate. This is a dangerous combination! Let’s explore.
Years ago when the Ryan Plan 1.0 was unveiled I did a pretty complete analysis. There were two scary findings. Surprisingly many things simply did not add up. I’m not talking in a figurative sense (more about that in a bit); I mean literally. In any budget or forecast you have to make projections and assumptions. The finished product is only as good as those projections. (With some poetic license, that is the figurative aspect.) When those projections or assumptions are unrealistic your entire budget is useless. Ryan is famous for making unrealistic assumptions and Trump apparently is no different.
Trump wants to do a lot of things that will cost money. In theory even a liberal like me is in favor of some of them (i.e. a huge infrastructure project.) Where Trump and I often differ are the conditions and methods he would like to employ. I’m a patriotic American; Trump is Don Trump looking to wet his beak.
If a conservative government needs to pay for things it has to have sufficient revenues. At the federal level revenue is largely a function of the size of the economy. Currently a conservative estimate of the American economy is $18 trillion, (that is actually a bit low, but sufficient for this exercise.) A realistic projection is that it will grow at a rate of about 2% over the near future. Yes, you read that correctly; even a Trump basher like me expects economic growth in the near-term. The anticipated Trump-Ryan budget is expected to project growth at 3 or 3.5%.
That 1 or 1.5% difference doesn’t sound like much until you consider it is being applied to a huge base number. At 2% the additional growth is $360 billion, at 3% it is $540 billion and at 3.5% it is $630 billion or an overstatement of $270 billion. Now those are all just abstract numbers to most of us so let me put them in perspective.
In 2015 our declared military budget was $601 billion. Keep in mind we have by far the largest military budget in the world. If it were all tax revenue (which it most certainly is not) a legitimate projection of growth wouldn’t come close to covering the military budget alone. The 3.5% projection is larger than the entire 2015 military budget.
The right wing in particular always harps about foreign aid. In 2014 total foreign aid was $35 billion. I won’t even play with those numbers.
Here is the real eye opener and perhaps a fairer comparison. If the overstatement of $270 billion were a publically traded corporation it would be number 2 on the Fortune 500 list. Only Walmart at $482 billion in revenues would be larger.
The moral of this story is that the American public needs to be aware of seemingly small errors (3.5% vs. 2%) because in the short run they translate into a huge difference ($270 billion dollars).
When reality and the revenue shortfall inevitably hit does anyone really think the Republicans will impose taxes on the rich to make up for it? I don’t! They will cut the social safety net even more. By the way, expect significant cutting in the initial proposal.
Since the Republicans like to use the example of a family budget so much I have some thoughts along those lines. If you had a household income of $100,000 a year and made the 50 to 75% revenue overstatement they are rumored to be soon making it would be like budgeting off of an income of $150,000 to $175,000. How would that work out under your roof?
In case I haven’t sufficiently scared you thus far consider this: since most of the growth will be enjoyed by the top who effectively make the tax rules it will be taxed at a much lower rate than if it went to the working class and poor. I won’t even start to calculate that impact.
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